The National Payments Corporation of India (NPCI) has extended the deadline for third-party apps like PhonePe and Google Pay to reduce their UPI market share by two years. Originally set for December 31, 2024, the new timeline gives these platforms until 2026 to comply. Alongside this, NPCI has removed the user onboarding cap for WhatsApp Pay, allowing it to expand beyond the earlier 10 crore user limit.
Dominance in UPI Market
Despite the entry of new players, PhonePe and Google Pay continue to dominate the UPI ecosystem with 48% and 37% market shares, respectively. In comparison, Paytm, the third-largest player, has struggled to grow due to regulatory challenges involving its payments bank.
This extension marks the second time NPCI has pushed back the deadline. It originally introduced a 30% market share cap in November 2020 to prevent risks associated with single-point failure. The cap was a response to the Yes Bank moratorium that disrupted PhonePe’s transactions and caused a 40% drop in UPI volumes overnight.
Industry Dynamics and New Players
In December 2024 alone, UPI transactions reached an impressive 1,613 crore, with a total value of Rs 22.3 lakh crore. Despite these volumes, new entrants like Naavi, Cred, and WhatsApp Pay have struggled to significantly impact the market. Experts believe this is due to their limited investment in transaction acquisition, unlike PhonePe and Google Pay, which have collectively spent billions of dollars to capture market share.
Vishwas Patel, Chairman of the Payment Council of India, welcomed the market cap extension, stating, “Blocking the growth of leading players would have slowed UPI’s progress. With new players and banks focusing on UPI apps, the market will naturally balance itself in the coming years.”
BHIM’s Strategy Shift
NPCI’s own app, BHIM, initially gained traction during its launch but lost momentum after being offered as a white-label service to banks. Recently, BHIM has been restructured into a separate division, and NPCI plans to promote it more aggressively to compete in the expanding UPI market.
Future of UPI
Industry insiders believe UPI is on track to achieve a billion transactions per day soon. With such high volumes and low operational costs, there’s potential for revenue generation through minimal charges on large merchant transactions. This optimistic outlook underscores UPI’s critical role in India’s digital payments ecosystem.
The extension gives existing and new players time to strengthen their presence while promoting diversity in UPI apps. However, as the market matures, competition is expected to increase, driving innovation and enhanced user experiences.
